A Netflix-Subscription-Like Electricity Bill

Photo by Nuno Marques on Unsplash

The Problem

The Solution

Frank P. Ramsey (source: Cambridge Wittgenstein archive)
  1. The revenue is less stochastic. Contrary to volumetric charges, customers, even rational ones, have no way of avoiding fixed charges. This contributes to the stability of the revenue.
  2. The issue of revenue shortfall and cost shifts is minimized. The reduction of the price markup (which is almost zero under Ramsey two-part pricing) directly curtails the bill savings achieved by prosumers, which in turn elongates the payback time on their rooftop solar investment.

The Drawbacks

  1. The reliance on fixed charges to achieve revenue at the cost of diminishing dependency on volumetric charges, impacts energy efficiency and rational usage. Higher percentage of the consumer bill will be independent of their consumption, which induce the tendency of irrational over-consumption due to the lack of incentivization.
  2. The adoption of rooftop solar will be stalled or at least severely affected. The consumer’s adoption decisions are mainly driven by the bill savings they can achieve and therefore systems’ payback time, which is very long given the small price markup.

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BS.c and MS.c in Electrical Engineering. Interested in electricity markets, optimization, math, microeconomics. https://www.ahmedsa.me

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Ahmed Alahmed

Ahmed Alahmed

BS.c and MS.c in Electrical Engineering. Interested in electricity markets, optimization, math, microeconomics. https://www.ahmedsa.me

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